Can Sec 148 notices be issued on the basis of an AIS mismatch?
1. What is AIS?
AIS (Annual Information Statement) is a comprehensive financial information report introduced by the Income Tax Department of India. It captures and displays various financial transactions of a taxpayer in a single statement, sourced from multiple third parties like banks, mutual funds, registrars, stock exchanges, etc.
2. What is AIS mismatch?
An AIS mismatch refers to a discrepancy between the information shown in your Annual Information Statement (AIS) and the details you have reported in your Income Tax Return (ITR).
3. Can the mismatch result into reopening of a case?
Yes, An AIS mismatch can constitute “information”, as per Explanation 1 to Section 148 of the Income Tax Act, which includes any information made available to the Assessing Officer under the risk management strategy formulated by the Board from time to time.
AIS is generated based on data from various third parties (banks, registrars, SFT filers, etc.), and is a part of the risk management and compliance framework.
So AIS mismatch may constitute information for the purpose of reopening of a case under Sec 148 of the Income Tax Act.
4. Can it result into reopening in all cases of mismatch?
In our view mere AIS mismatch does not give a blanket authority to reopen a case. The AO should make an independent verification of the mismatched data and then firm up his decision on the same.
5. Some relevant case laws supporting our view:
Hon Supreme Court in Union of India v. Ashish Agarwal [(2022) 444 ITR 1 (SC)] clarified the procedure under Section 148A, emphasizing the need for proper inquiry and opportunity to the assessee before issuing a notice under Section 148.
In IL & FS Investment Managers Ltd. v. ITO [298ITR32(BOM)], the Hon Bombay High Court emphasized that the AO must apply his own mind and not act solely on information from an audit party or other sources without verification.
In Commissioner of Income Tax-1, Thane Vs. Agfa India Pvt. Ltd. too, Hon Bombay High Court highlighted that it is mandatory for the AO to independently apply his mind to the materials on record. Non application of mind on the part of AO to the information received can vitiate the initiation of reassessment proceedings.
